From: Charlie Stross (charlie@antipope.org)
Date: Sun Sep 02 2001 - 03:22:50 MDT
On Sat, Sep 01, 2001 at 03:52:16PM -0700, Robert J. Bradbury wrote:
> > By giving the workers more money to spend, in the broader picture,
> > bosses can expand the overall size of the market (and ultimately reap
> > bigger long term rewards).
>
> I'd say this is incorrect. Any economist will tell you
> that present-day consumption borrows from future growth
> rates. If Jack Welch earns $122 million where does it go?
> After 30-40% to the government, most of it probably goes
> into risk capital. I.e. into those funds providing the
> money Charlie would like to get from the VCs. Risky
> investments, but big payoffs. Jack gets richer and if
> Charlie's strategy works out he gets to join the Jack's
> ranks. On the other hand if you instead redirect the
> money to the worker, who then proceeds to use it to buy
> "Pet Rocks", there is relatively little job creation
> (providing jobs for people who would otherwise not
> have them), or making the economy more productive
> (by fostering inventions that increase efficiency).
Forget pet rocks -- they're spurious -- and think PDAs, laptops, new
technowidgets, new cosmetic surgery; in other words, forms of consumption
that are based on technological innovation. That's most of them, these
days. (Let's face it, if you want to live by buying raw vegetables and
meat and cooking them and by buying fabric and making your own clothing,
you can do so -- and on a pittance, because those items are dirt cheap
in the developed world. Most consumer spending goes elsewhere, these
days.)
What you've put your finger on is the tradeoff between value created
by money invested in growth and value created by broadening the market
base.
I'd assert that focussing on investment for future growth alone is a
mistake. If everyone put their money into VC risk funds, they're
not going to have any money left over to buy the products of those
risky start-up companies. Ergo, those start-ups aren't going to survive!
The two kinds of money are going into different phases of the business
life-cycle: either at the beginning, seeding new ventures (the VC
money) or during the life of the company, buying their products. Our
economy needs both types of investment.
> I cannot find merit in this thread (so far) because it fails to
> account for the multiplier effect(s) of the allocation of
> income by an "average" person compared with the multiplier
> effect(s) of the allocation of income by a "wealthy" person.
I think you'll find that extremely difficult to establish. For example,
in the UK there are tax loopholes for certain types of small investment
that give ordinary workers an incentive to put money into certain types
of long-term (seven year) investment trusts. Thus, those ordinary workers
are _also_ contributing to the VC funds. Meanwhile, our hypothetical
wealthy executive still can't occupy more than one automobile or aircraft
seat simultaneously. They may have two or more orders of magnitude more
money coming in than an ordinary worker, but they won't consume two or
more orders of magnitude more "stuff"; if anything, they're more likely
to be at the painted-rock end of the consumption spectrum (buying works
of art as investments, building dream homes), which doesn't further
technological investment very effectively.
> Now, if someone were to make the case that a majority of
> wealthy (or highly compensated) executives spend a majority
> of their wealth in non-productive ways -- then I would have to
> sit back and rethink my position.
Well, I can't make that case; some individuals doubtless convert their
wealth into gold bullion and have it melted down and turned into a
bathtub, but others do useful things with it. For example, Bill Gates --
whose company I detest -- has nevertheless done something I quite admire
recently; he's allocated a not-inconsiderable sum ($750M) to a public
health scheme in south-east Asia that's intended to eliminate about four
diseases that are endemic there today but considered diseases of poverty
in the developed world. In doing so he's improving the quality of life of
millions.
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